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More Lessons For San Diego Businesses On Protecting Trade Secrets

Many times, trade secrets are a key piece of intellectual property that can “make or break” a small business and it is crucial for San Diego businesses to protect them. An experienced San Diego corporate attorney can help. Under the California Uniform Trade Secrets Act (“CUTSA”), a “trade secret” is any type of information that is not generally known to the public (that is, the information is “secret”) and is commercially value because the information is not generally known. To be entitled to legal protection, the San Diego business must take “reasonable measures” to protect the secrecy of the information. See Cal. Civ. Code §§ 3426, et. seq.

An interesting case from Florida involving yacht designs was recently decided that provides some lessons on what is considered a “trade secret” and what “reasonable measures” are needed for protecting those secrets. See Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, Case No. 17-11176 (US 11th Cir. Aug. 7, 2018) (hereinafter, “Yellowfin”; applying Florida version of the UTSA). Since the CUTSA is based on the uniform law that has been adopted by 49 States, cases from our sister States can be useful and persuasive.

Yellowfin Yachts, Inc. is a small company that makes small-to-medium sized boats mainly used for ocean fishing. They are deemed “center-console” in the sense that the operating controls are in the middle of the boat with a tapering front area and a squared-off rear area that can be used for fishing or other activities. In 2006, Yellowfin hired a new Vice President named Keven Barker. After eight years, Barker separated from Yellowfin and started his own company, Barker Boatworks, LLC. As the court described, before leaving, Barker, “… downloaded hundreds of files from Yellowfin’s main server” including “detailed purchasing history and specifications for all of Yellowfin’s customers,” as well as “drawings” and “style images” for Yellowfin boats and “related manufacturing information.” In the ensuing litigation, Barker did not dispute or deny that he downloaded the files. However, he claimed that he downloaded the information, not to steal trade secrets, but to ensure that he was paid commissions that he was due.

In any event, as noted, Yellowfin Yachts brought suit against Barker and his new company. Among other claims, Yellowfin alleged that Barker stole trade secrets. However, the trial court dismissed all of the trade secret claims before the trial at the summary judgment stage. Yellowfins claimed trade secrets were these:

Vendor and source information — names and actual contracts

Pricing information from vendors and suppliers including volume discounting

With respect to the first three, the trial court concluded that the information either was publicly known or knowable or that the information had no “commercial value.” With respect to the vendors and suppliers, many of Yellowfin’s suppliers placed trademarked logos and other identifiers on their parts. Further, Yellowfin could not identify any parts manufacturer in the boating/yachting industry that was not well-known or easily knowable with some research. Pricing information was also readily available. As for the volume discounting, the court rejected those as trade secrets since volume discounting was not available to small companies like Yellowfin and Barker.

With respect to customer information and production costs, the court agreed those were protectible trade secrets. However, the trial court held that Yellowfin had not taken “reasonable measures” to keep the information secret. Yellowfin apparently did not do anything to protect the information with respect to production costs. Concerning customer information, the court concluded that Yellowfin’s efforts were insufficient and cited these facts:

Yellowfin did not have Barker sign a confidentiality agreement

Yellowfin encouraged Barker to keep customer info on his cellphone and personal laptop (with no password or other protection)

Yellowfin did not ask Barker to delete or return any of the information when he quit

None of the information was marked as “CONFIDENTIAL”

Contact San Diego Corporate Law

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides legal services the San Diego business community and can help with intellectual property, private securities offerings/sales, entity formation, the sale/purchase of a business, and mergers and acquisitions. Mr. Leonard can also assist with reviewing and drafting business contracts. Mr. Leonard can be reached at (858) 483-9200 or via email.

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Michael J. Leonard, Esq., is an award winning attorney whose practice focuses on corporate, securities, contract, and intellectual property law for small and medium businesses. In his practice, Mr. Leonard routinely assists his clients with the formation of business entities, financing through the sale of debt and equity securities, mergers and acquisitions, contract drafting and review including commercial leases, and establishment and licensing of trademarks, copyrights, and trade secrets.